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Ac211 Module 1 Management Accounting And Strategy (Course Notes) Notes

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Lecture 1: Introduction to Modern Management Accounting 04 October 2010

Topics

* Forces of change

* Contemporary issues

* The "new economy"

* Costing

Reading

* Strategic Finance (Chapter 1,2)

Forces of Change Traditional Management Accounting Model

? Budgets are the accounting tool for implementing the planning action
? Control is the capturing of the difference in actual to planned results List of Forces of Change in Management Accounting
? The 1970s were hard times
? Started with OPEC prices |
? Any company that faces constraints becomes inward facing
? This leads to management accounting
? Servicing the needs of the services industries
? The west became more service orientated
? 80% of OECD GDP is accounted for by the service sector
? The advent of technology
? Meant companies became more complex
? Subservience to financial accounting
? The residues of Japan + new influences
? By the late 1970s Japan was taking over western markets
? Japanese management influenced western management accounting
? Strategizing accounting
? Accounting for intellect Management Accounting versus Financial Accounting
? Users
? Standards
? Levels of detail
* Time focus / personalisation
? Volume of information New Management Accounting Model

Changes in Management Accounting
? Backward looking - Forward looking
? Internal focus - External perspective
? Product/Services - Customers and markets
? Financial data - Financial and non-financial information
? Functional - Process
? Information - Knowledge The Traditional Finance Function

? 7.5 pence in every PS1 spent goes to the finance department We can cut costs by outsourcing services

Course Notes Page 1

Key Points

* Forces of change in MA

* MA vs. FA

* Contemporary issues of MA

* Cost management issues

* Absorption costing

* Variable costing

* CVP analysis

* CVP assumptions (5)

? We can cut costs by outsourcing services
? Most of the transaction processing can be outsourced because it's cheaper and customers don't care
? Other functions are difficult to outsource Contemporary Issues in Management Accounting
? More complex production requires less labour costs but more overheads

* Most products have shortening life cycles
? Products are enhanced at a greater pace

Increasing Trends Affecting Management Accounting
? Use of more flexible organisational technologies
? Product complexity and diversity
? Capital intensiveness in many industries
? Outsourcing / Supply chain changes
? Quality management
? E-business application Management Accounting Concerns of Organisations
* 60% - Activity based costing
* 52% - Cost of quality reporting
* 46% - Target costing
* 44% - Strategic management accounting
* 11% - Life cycle costing Satisfaction of Management Approaches

? As we move to the right, we see that management use and are most satisfied with externally approaches The "New Economy"
? The advent of the internet and better technology has led to a new economy
? This has created a new dimension for businesses

? Pure e-business may have high percentage of fixed costs Emerging Cost Management Issues
? Digital vs. physical
? Cost structure changes
? Intellectual capital / Knowledge management
? Dynamic trading
? Versioning of products
? Scalability
? Corporate governance / corporate performance

Costing Important Words to Learn
* Fixed costs
* Variable costs
* Semi-fixed costs
* Semi-variable costs
* Traceable costs
? Direct materials
? Direct labour
* Untraceable costs
? Factory overhead (Variable vs fixed)
* Period costs
* Product costs Absorption Costing
? Normally externally focused
? Also known as function costing

Course Notes Page 2

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